There’s no business idea that can be successful without funding. You can launch it from your garage, but in order for it to grow, you’ll need employees, office space, a website, and eventually money to pay your monthly rent. In order to really get your business off the ground in the early startup days, most entrepreneurs and businesses require at least a little bit of funding. But, how do newbie entrepreneurs and startup owners do it? The most obvious choice is to get a business loan from traditional lenders, but if this fails, there are many alternative funding solutions one can use to fund their business idea.
1. Angel investors
If a bank turns you down and you don’t have a rich cousin you could turn to, there are always angel investors. They are wealthy individuals who are looking to invest in startups that are promising and profitable, in exchange for an equity stake in the new company. Angel investors can offer financing, while some even go further to provide guidance based on their expertise and experience. They are also willing to open many doors for your business by offering their contacts.
2. Venture capitalists
Most venture capital firms are essentially partnerships that invest company money, so they are pretty selective and invest only in businesses that have shown the ability to generate profits. These firms make direct investments in exchange for equity stakes in the business, and they do it hoping to sell their equity if the business gets sold to a larger business or holds an initial public offering. If your business requires some serious funding, you should consider turning to venture capital firms, as they can provide you with larger amounts of money.
Crowdfunding is done through crowdfunding websites, and it is based on raising money from a number of small, individual supporters across the Internet. The crowdfunding process goes like this: you set up a campaign, name an amount of money you want to raise, and create certain perks for supporters who pledge a certain amount of money. The money is then raised over a specified period of time, and with some crowdfunding platforms, such as Kickstarter, you get to keep the money only if you raise the full amount you previously determined. On the other hand, IndieGoGo lets you keep the raised amount for a cut of the proceeds.
When it comes to loans, there are different options you can choose from. There are home equity loans that allow you to borrow money against the value of your home. They can be a low-cost form of borrowing and offer flexible interest rates. Another form of taking a loan is peer-to-peer lending that allows you to borrow money without going through a traditional investment company or traditional bank. You post a loan request, along with the reason for the loan and the amount desired, which is then reviewed by potential investors. Once the loan gets approved, you’ll receive the full amount and pay it back through fixed monthly payments. Online lenders offer the opportunity of getting fast loans at lower interest rates, which is why they’ve become a major source of startup funding.
5. Friends and family
In case your credit score isn’t good enough for the bank to lend you money, or can’t rely on your own savings, you can turn to your closest ones. This can be a potential way to finance your business idea, as they can provide you with finds at no- or low-interest payments, without the hassle you’d have to face with other types of loans. Your family and friends are most likely to look past your bad credit score and current account balances when determining whether you’re worth the investment risk. On the other hand, if your business fails, there’s a risk of ruining good relationships with your family members.
It takes a lot of effort and planning to put together the financing for a new business. Consider all the possible options, weigh both benefits and downsides of each one of them, and determine which one provides the greatest flexibility at the lowest cost. Of course, you don’t have to limit yourself only to one source of financing. Small businesses often start with money obtained from several different sources, and thanks to the rise of new funding sources, such as P2P lending and crowdfunding, there are many funding options at your disposal.